Payday Lending

Thirteen Republican Senators have sent a letter to FDIC Chairman Jelena McWilliams urging the FDIC to take action to ensure that lawful businesses are no longer at risk of adverse financial consequences as a result of “Operation Choke Point, and its associated culture and Choke Point-like regulatory actions.”

“Operation Choke Point” was a federal enforcement initiative involving various agencies, including the DOJ, OCC, FDIC, and Fed. Initiated in 2012, Operation Choke Point targeted banks serving online payday lenders and other companies that have raised regulatory or “reputational” concerns. In June 2014, the national trade association for the payday lending industry and several payday lenders initiated a lawsuit in D.C. federal district court against the FDIC, Fed, and OCC in which they alleged that certain actions taken by the regulators as part of Operation Choke Point violated the Administrative Procedure Act and their due process rights. In September 2018, pursuant to a joint stipulation of dismissal, the Fed was dismissed from the lawsuit. Cross-motions for summary judgment are currently pending before the court.

In their letter, the Senators ask the FDIC if it is the agency’s official position “that lawful businesses should not be targeted by the FDIC simply for operating in an industry that a particular administration might disfavor” and “[i]f so, what [the FDIC is] doing to make sure that bank examiners and other FDIC officials are aware of this policy and have communicated it to regulated institutions?” They also ask whether there were any communications explaining supervisory expectations of “elevated risk” or “high risk” merchants with regulated institutions that would likely qualify as a rule under the Congressional Review Act that were not properly submitted to Congress and what the FDIC is doing to ensure that its staff does not communicate policy in a matter that is inconsistent with the position of the FDIC’s Board of Directors.

The letter does not reference the FDIC’s January 2015 Financial Institution Letter (FIL) entitled “Statement on Providing Banking Services” that attempted to rectify the damage created by Operation Choke Point. In the Statement, the FDIC “encourages institutions to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers, without regard to the risks presented by an individual customer or the financial institution’s ability to manage the risk.” The Statement followed the FDIC’s July 2014 FIL in which the FDIC withdrew the list of “risky” merchant categories (such as payday lenders and money transfer networks) that was included in prior guidance on account relationships with third-party payment processors (TPPPs). Consistent with the July 2014 FIL and an October 2013 FIL on TPPP relationships, the 2015 FIL advised banks that they were neither prohibited nor discouraged from providing services to customers operating lawfully, provided they could properly manage customer relationships and effectively mitigate risks. However, unlike the prior FILs, the new FIL expressly acknowledged that “customers within broader customer categories present varying degrees of risk” and should be assessed for risk on a customer-by-customer basis.

With the August 19, 2019 compliance date for the CFPB’s small dollar lending rule drawing nearer, industry anxiety is growing as to the CFPB’s plans for delaying the compliance date and what changes will be proposed. In this episode, we review what the rule’s ability to pay and repayment provisions would require and why those provisions are problematic. We also discuss changes we expect the CFPB to propose, developments in the pending industry lawsuit challenging the rule, and steps companies can take in advance of the compliance date.

By an overwhelming vote (approximately 1,4270,000 million to 433,000), Colorado voters passed Proposition 111, a ballot initiative that places a 36 percent APR cap on payday loans. The question presented to voters was:

Shall there be an amendment to the Colorado Revised Statutes concerning limitations on payday lenders, and, in connection therewith, reducing allowable charges on payday loans to an annual percentage rate of no more than thirty-six percent?

As described on the Colorado Secretary of State’s website, Proposition 111 “would restrict the charges on payday loans to a yearly rate of 36 percent and would eliminate all other finance charges and fees associated with payday lending.”

Colorado’s Attorney General has indicated that at least half of all retail lenders closed their doors following the enactment of legislation in 2010 that restricted payday loan fees to an average APR of about 120%. We suspect that Proposition 111 will have a similar effect, with only the most efficient operators remaining that can rely on sheer volume, sophisticated underwriting, and other product structures available under the Colorado Consumer Credit Code.

According to American Banker, the passage of Proposition 111 makes Colorado the fifth state to impose rate caps on payday loans through a voter referendum. The other states to have done so are South Dakota, Ohio, Arizona, and Montana.

Yesterday, the court reversed course in the lawsuit filed by two industry trade groups challenging the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule). On its own initiative, the Texas federal district court granted a stay of the Payday Rule’s August 19, 2019 compliance date and continued in force its stay of the lawsuit. Unfortunately, the court did not specify a termination date for the stay of the compliance date, as the trade groups and CFPB originally requested. Instead, the compliance date is stayed “pending further order of the court.”

To my mind, the court’s failure to specify how long the stay of the compliance date will remain in effect leaves the Rule’s status hopelessly muddled. The CFPB has stated that its current plan is to revisit the Payday Rule’s ability-to-repay (ATR) provisions but not its payment provisions. CFPB officials have indicated that the Bureau intends to propose a delay of the Payday Rule’s ATR provisions but not the payment provisions. What happens if the CFPB follows through with that plan? When the parties report that development to the court, might the court just lift its stay of the compliance date, without affording lenders additional time to address the payment provisions?

My guess is that the court intends its stay to function like the tolling of a statute of limitations—meaning that, for each day the stay remains in effect, the August 19 compliance deadline is extended for an additional day. But alas, the court’s order does not specify this intent. I hope the parties in the case ask for clarification that the compliance date will be extended day-for-day so long as the stay remains in effect. Alternatively, the CFPB could announce that it will propose a delay in the compliance date for the payment provisions when it moves forward with its rule-making next January.

Unless and until the court and/or the CFPB clarify their intentions, prudent lenders will continue to prepare for the advent of the payment provisions of the Payday Rule. As Ned Stark from The Game of Thrones might say (if he were alive): “August 19 is coming.”

The Bureau expects to issue proposed rules in January 2019 that will reconsider the Bureau’s rule regarding Payday, Vehicle Title, and Certain High-Cost Installment Loans and address the rule’s compliance date. The Bureau will make final decisions regarding the scope of the proposal closer to the issuance of the proposed rules. However, the Bureau is currently planning to propose revisiting only the ability-to-repay provisions and not the payments provisions, in significant part because the ability-to-repay provisions have much greater consequences for both consumers and industry than the payment provisions. The proposals will be published as quickly as practicable consistent with the Administrative Procedure Act and other applicable law.

Of course, the Bureau is correct in observing that the ability-to-repay (ATR) provisions of the Rule “have much greater consequences for both consumers and industry than the payment provisions.” That is because the ATR provisions, if allowed to go into effect, would largely kill the industry and thus deprive millions of consumers of a source of credit they deem essential. Nevertheless, the draconian potential consequences of the ATR provisions do not justify leaving the payment provisions intact. These provisions are unduly complicated. They require hard-to-reach consumers to affirmatively reauthorize lender-initiated payment attempts after two consecutive unsuccessful attempts rather than relying on a simpler and more straightforward notice and opt-out regimen.

Also, while the payment provisions are supposedly designed to prevent excessive NSF fees, as we have pointed out in a comment letter to the Bureau and elsewhere, they treat attempts to initiate payments by debit card, where there is no chance of any NSF fee, the same as other forms of payment that can give rise to NSF fees. This treatment of card payments can only be ascribed to the hostility to high-rate lending characteristic of the former leadership of the Bureau. If the Bureau does nothing else with the Rule’s payment provisions, it should certainly correct this wholly indefensible aspect of the Rule.

We note that the Bureau requested an extension until Monday, October 29, to respond to the preliminary injunction motion by the Community Financial Services Association and Consumer Service Alliance of Texas. If the Bureau files its response Monday, we will likely have more to report.

Addressing the Mortgage Bankers Association (MBA) 2018 Annual Convention in Washington, DC on October 15, 2018, BCFP Acting Director Mick Mulvaney advised that regulation by enforcement is dead, and that he does not care much for regulation by guidance either. He noted to the members that they have a right to know what the law is.

Acting Director Mulvaney advised that if a party is doing something that is against the law, the BCFP will take action against them. However, he advised the difference between the BCFP now from its approach under the prior Director is that if someone is doing something that complies with the law and the BCFP doesn’t like it, the BCFP will not take action.

With regard to UDAAP, Acting Director Mulvaney stated that he believes the concepts of “unfair” and “deceptive” are well established in the law, but that is not so with regard to the concept of “abusive”. He noted he asked his staff to provide examples of what is abusive that is not also either unfair or deceptive. And he signaled that the BCFP will look to engage in rulemaking on abusive.

As we have reported the MBA and other trade groups recently sent a letter to the BCFB seeking reforms in connection with the BCFP’s loan originator compensation rule. When asked by MBA President and CEO Robert Broeksmit about the letter, Acting Director Mulvaney advised that he knew the letter was received and that it is being reviewed by staff, but that he had not actually seen the letter. Mr. Broeksmit then handed Mr. Mulvaney a copy of the letter, drawing laughs from the audience.

With regard to payday lending, Acting Director Mulvaney advised that it can be really dangerous for people given the high interest rates, but that people want it so it exists. He noted he has told payday lenders they exist because bank regulators forced banks out of the business. But he stated that the OCC has signaled it will allow banks back in, and that the way to fix payday lending is through competition.

On September 19, 2018, the Georgia based Cooperative Baptist Fellowship (the “Fellowship”) filed a motion to intervene as a defendant in a case filed by the Community Financial Services Association of America Ltd. and the Consumer Service Alliance of Texas challenging the CFPB’s Payday Rule. The lawsuit was filed in April 2018 claiming, among other things, that the CFPB did not follow proper procedure in issuing the Payday Rule; that the CFPB improperly deemed certain lending practices unfair and abusive; that the CFPB’s authority to address unfair and abusive practices is unconstitutional; and that the CFPB’s structure is unconstitutional. The motion to intervene came on the heels of the trade group plaintiffs’ request to lift the stay and motion for a preliminary injunction. The stay was entered in June.

The Fellowship claims that it has standing to intervene because of its previous efforts to get the Payday Rule written and, once the Rule is implemented, it would be able to redirect the resources it currently devotes to combating payday and vehicle title loans. The Fellowship further argued that it would vigorously defend the lawsuit, while the CFPB might not – citing the CFPB’s plans to reconsider the Rule as well as its willingness to stay the Rule’s compliance date.

In their opposition to the intervention motion, the trade group plaintiffs argued that the Fellowship’s interest in the lawsuit was too tenuous to support intervention, likening the Fellowship’s plea to the interest of any lobbying group seeking to join a lawsuit. They also argued that the Fellowship had not met its burden of overcoming the presumption that the CFPB would not adequately defend this case. They further noted that the Fellowship could make legal arguments through an amicus brief without intervening.

The CFPB has not yet filed an opposition to the intervention motion and it is unclear whether it will do so.

A scheduling conference is being held by the Court on October 4, 2018.

The Payday Rule is currently set to be implemented by August 19, 2019.

The CFPB is asking the Texas federal district court to give it a 45-day extension to respond to the preliminary injunction motion filed by two trade groups in their lawsuit challenging the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule). The motion seeks a preliminary injunction to block the CFPB from enforcing the Payday Rule and asks the court to act on the motion by November 1. The trade groups also filed a motion to lift the stay of their lawsuit that the district court had granted despite denying their request for a stay of the Payday Rule’s August 19, 2019 compliance date.

In its motion to extend the response deadline, the CFPB states that, if the stay of the lawsuit were not in effect, its response would be due by September 21. The 45-day extension is sought if the court grants the trade groups’ motion to lift the stay. In support of its request, the CFPB states the following:

The relief sought by this motion will not prejudice Plaintiffs. Moreover, to the extent that Plaintiffs aver their members are suffering irreparable harm that justifies Plaintiffs’ request for a ruling from this Court by November 1, the current time constraints are largely of Plaintiffs’ own making. Plaintiffs did not file this lawsuit challenging the Payday Rule until almost 6 months after that rule was published in the Federal Register. Plaintiffs then waited 94 days after the Court denied the parties’ joint motion to stay the compliance date of the Payday Rule, including 38 days after the Court denied Plaintiffs’ motion for reconsideration, before submitting their Motion for a Preliminary Injunction. The Bureau and the Court should not be unduly rushed in arguing and adjudicating these issues as a result of Plaintiffs’ own delay. The requested extension would, if granted, give the Bureau 45 days to respond to Plaintiffs’ motion.

Early this year, the CFPB announced that it intended to engage in a rulemaking process to reconsider the Payday Rule pursuant to the Administrative Procedure Act (APA) and in its Spring 2018 rulemaking agenda, it indicated that it expects to issue a Notice of Proposed Rulemaking to revisit the Payday Rule in February 2019. In their Unopposed Motion to Lift the Stay of Litigation, the trade groups state that the CFPB “has noted that it does not expect that rulemaking to be complete before the compliance date. Moreover, it is impossible to know what the result of that rulemaking will be.” They assert that because the compliance date has not been stayed, they “now have no choice but to pursue a preliminary injunction” to avoid the irreparable injuries the trade groups’ members will suffer in preparing for compliance with the Payday Rule’s requirements. They indicate that they have conferred with the CFPB about the motion and that the CFPB has stated that it does not oppose the motion provided the trade groups agree that the CFPB does not have to file an answer in the case pending further court order. The trade groups agreed to the CFPB’s request.

In the preliminary injunction motion, the trade groups argue that they are likely to succeed on the merits in their lawsuit challenging the Payday Rule because:

The Payday Rule was adopted by an unconstitutionally-structured agency.

The lending practices prohibited by the Payday Rule do not meet the CFPA’s standard for an act or practice to be deemed “unfair” because extending payday loans without satisfying the Bureau’s “ability to repay” determination is not likely to cause “substantial injury” to consumers, any injury caused by the prohibited practices is “reasonably avoidable,” and any injury that is not reasonably avoidable is “outweighed by countervailing benefits.”

The lending practices prohibited by the Payday Rule do not meet the CFPA’s standard for an act or practice to be deemed “abusive” because consumers do not lack “understanding” of the loans covered by the Payday Rule and the prohibited practices do not take “unreasonable advantage” of consumers’ inability to protect their interests.

The Payday Rule violates the CFPA provision prohibiting the Bureau from establishing a usury limit.

The account access practices prohibited by the Payday Rule do not meet the CFPA’s standards for an act or practice to be deemed “abusive” or “unfair.”

The trade groups also argue that a preliminary injunction is necessary to prevent irreparable harm to their members in the form of the “massive irreparable financial losses” they will suffer if required to comply with the Payday Rule beginning in August 2019. They assert that these harms are not mitigated by the Bureau’s plans to reconsider the Payday Rule because “[t]he outcome of that rulemaking is uncertain and, in any event, repeal would not remedy the harms that are occurring now.”

Finally, the trade groups contend that the balance of harms and public interest favor a preliminary injunction. With regard to the balance of harms, they assert that there will be no cost to the Bureau in preserving the status quo pending an adjudication of the Payday Rule’s validity and “given its decision to reconsider the Final Rule, the Bureau will actually benefit from an injunction, which will ensure that the Bureau has sufficient time to conduct a thorough and careful reassessment of the rule.” (emphasis included). With regard to the public interest, the trade groups assert that the Payday Rule’s “unlawful nature” weighs heavily in favor of an injunction and a stay “will ensure that borrowers whom the rule would otherwise deprive of needed sources of credit will continue to have access to payday loans until the rule’s legality is resolved.”

The trade groups’ motion to stay the compliance date and litigation was filed jointly with the CFPB. In the preliminary motion, the trade groups state that they conferred with the CFPB and the CFPB stated that it could not take a position on the motion before reading it. Whether or not the CFPB opposes the motion, we expect consumer advocacy groups, in all likelihood the same groups that opposed the stay motion, will seek to file an amicus brief opposing the preliminary motion. Should the CFPB not oppose the preliminary injunction motion, the consumer advocacy groups are likely to assert as they did in opposing the stays that their participation is necessary to provide the court with the benefit of adversarial briefing.

We were hopeful that after the district court denied the trade groups’ request for reconsideration of the court’s denial of a stay of the Payday Rule’s compliance date, the CFPB would move quickly to issue a proposal to delay the compliance date pursuant to the APA’s notice-and-comment procedures. The filing of the preliminary injunction motion suggests that the trade groups are not optimistic that the CFPB will promptly take this course. Perhaps the CFPB will reveal its plans in its response to the motion.

In light of the CFPB’s prior support for the trade groups’s stay motion, the CFPB might consent to the entry of a preliminary injunction. Even if it does so, however, there is no certainty that the district court will grant a preliminary injunction. If the district court were to deny the preliminary injunction motion, the trade groups would have the right to appeal the denial to the Fifth Circuit which already has before it another case which raises the same constitutional challenge to the CFPB that the trade groups have raised.

On October 10, 2018, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar, “Key Takeaways from the CFPB’s Summer 2018 Supervisory Highlights.” The webinar registration form is available here.

Noticeably absent from the new report’s introduction and the Bureau’s press release about the report are statements touting the amount of restitution payments that resulted from supervisory resolutions or the amounts of consumer remediation or civil money penalties resulting from public enforcement actions connected to recent supervisory activities. (The report does, however, include summaries of the terms of two consent orders entered into by the Bureau, including its settlement with Triton Management Group, Inc., a small-dollar lender, regarding the Bureau’s allegations that Triton had violated the Truth in Lending Act and the CFPA’s UDAAP prohibition by underdisclosing the finance charge on auto title pledges entered into with consumers.)

The report confirms that the Bureau’s supervisory activities have continued without significant change under its new leadership. It includes the following information:

Automobile loan servicing. The report indicates that in examinations of auto loan servicing activities, Bureau examiners focus primarily on whether servicers have engaged in unfair, deceptive, or abusive acts or practices prohibited by the CFPA. It discusses instances observed by examiners in which servicers had sent billing statements to consumers who had experienced a total vehicle loss showing that the insurance proceeds had been applied to the loan so that the loan was paid ahead and the next payment was due months or years in the future. The CFPB found the due dates in these statements to be inconsistent with the terms of the consumers’ notes which required the insurance proceeds to be applied to the loans as a one-time payment and any remaining balance to be collected according to the consumers’ regular payment schedules. According to the CFPB, sending such statements was a deceptive practice. The CFPB indicates that in response to the examination findings, servicers are sending billing statements that accurately reflect the account status after applying insurance proceeds.

The Bureau also found instances where servicers, due to incorrect account coding or the failure of their representatives to timely cancel the repossession, had repossessed vehicles after the repossession should have been cancelled because the consumer had entered into an extension agreement or made a payment. This was found to be an unfair practice. The CFPB indicates that in response to the examination findings, servicers are stopping the practice, reviewing the accounts of affected consumers, and removing or remediating all repossession-related fees.

Credit cards. The report indicates that in examinations of the credit card account management operations of supervised entities, Bureau examiners typically assess advertising and marketing, account origination, account servicing, payments and periodic statements, dispute resolution, and the marketing, sale and servicing of add-on products. The Bureau found instances where entities failed to properly re-evaluate credit card accounts for APR reductions in accordance with Regulation Z requirements where the APRs on the accounts had previously been increased. The report indicates that the issuers have undertaken, or developed plans to undertake, remedial and corrective actions in response to the examination findings.

Debt collection. In examinations of larger participants, Bureau examiners found instances where debt collectors, before engaging in further collection activities as to consumers from whom they had received written debt validation disputes, had routinely failed to mail debt verifications to such consumers. The Bureau indicates that in response to the examination findings, the collectors are revising their debt validation procedures and practices to ensure that they obtain appropriate verifications when requested and mail them to consumers before engaging in further collection activities.

Mortgage servicing. The report indicates that in examinations of servicers, Bureau examiners focus on the loss mitigation process and, in particular, on how servicers handle trial modifications where consumers are paying as agreed. In such examinations, the Bureau found unfair acts or practices relating to the conversion of trial modifications to permanent status and the initiation of foreclosures after consumers accepted loss mitigation offers. In reviewing the practices of servicers with policies providing for permanent modifications of loans if consumers made four timely trial modification payments, the Bureau found that for nearly 300 consumers who successfully completed the trial modification, the servicers delayed processing the permanent modification for more than 30 days. During these delays, consumers accrued interest and fees that would not have been accrued if the permanent modification had been processed. The servicers did not remediate all of the affected consumers ,did not have policies or procedures for remediating consumers in such circumstances, and attributed the modification delays to insufficient staffing. The Bureau indicates that in response to the examination findings, the servicers are fully remediating affected consumers and developing and implementing policies and procedures to timely convert trial modifications to permanent modifications where the consumers have met the trial modification conditions.

The Bureau also identified instances in which servicers, due to errors in their systems, had engaged in unfair acts or practices by charging consumers amounts not authorized by modification agreements or mortgage notes. The Bureau indicates that in response to the examination findings, the servicers are remediating affected consumers (presumably by refunding or credit the unauthorized amounts) and correcting loan modification terms in their systems.

With regard to foreclosure practices, Bureau examiners found instances where mortgage servicers had approved borrowers for a loss mitigation option on a non-primary residence and, despite representing to borrowers that they would not initiate foreclosure if the borrower accepted loss mitigation offers in writing or by phone by a specified date, initiated foreclosures even if the borrowers had called or written to accept the loss mitigation offers by that date. The Bureau identified this as a deceptive act or practice. The Bureau also found instances where borrowers who had submitted complete loss mitigation applications less than 37 days from a scheduled foreclosure sale date were sent a notice by their servicer indicating that their application was complete and stating that the servicer would notify the borrowers of their decision on the applications in writing within 30 days. However, after sending these notices, the servicers conducted the scheduled foreclosure sales without making a decision on the borrowers’ loss mitigation application. Interestingly, while the Bureau did not find that this conduct amounted to a “legal violation,” it did find that it could pose a risk of a deceptive practice.

Payday/title lending. Bureau examiners identified instances of payday lenders engaging in deceptive acts or practices by representing in collection letters that “they will, or may have no choice but to, repossess consumers’ vehicles if the consumers fail to make payments or contact the entities.” The CFPB observed that such representations were made “despite the fact that these entities did not have business relationships with any party to repossess vehicles and, as a general matter, did not repossess vehicles.” The Bureau indicates that in response to the examination findings, these entities are ensuring that their collection letters do not contain deceptive content. Bureau examiners also observed instances where lenders had used debit card numbers or Automated Clearing House (ACH) credentials that consumers had not validly authorized them to use to debit funds in connection with a defaulted single-payment or installment loan. According to the Bureau, when lenders’ attempts to initiate electronic fund transfers (EFTs) using debit card numbers or ACH credentials that a borrower had identified on authorization forms executed in connection with the defaulted loan were unsuccessful, the lenders would then seek to collect the entire loan balance via EFTs using debit card numbers or ACH credentials that the borrower had supplied to the lenders for other purposes, such as when obtaining other loans or making one-time payments on other loans or the loan at issue. The Bureau found this to be an unfair act or practice. With regard to loans for which the consumer had entered into preauthorized EFTs to recur at substantially regular intervals, the Bureau found this conduct to also violate the Regulation E requirement that preauthorized EFTs from a consumer’s account be authorized by a writing signed or similarly authenticated by the consumer. The Bureau indicates that in response to the examination findings, the lenders are ceasing the violations, remediating borrowers impacted by the invalid EFTs, and revising loan agreement templates and ACH authorization forms.

Small business lending. The Bureau states that in 2016 and 2017, it “began conducting supervision work to assess ECOA compliance in institutions’ small business lending product lines, focusing in particular on the risks of an ECOA violation in underwriting, pricing, and redlining.” It also states that it “anticipates an ongoing dialogue with supervised institutions and other stakeholders as the Bureau moves forward with supervision work in small business lending.” In the course of conducting ECOA small business lending reviews, Bureau examiners found instances where financial institutions had “effectively managed the risks of an ECOA violation in their small business lending programs,” with the examiners observing that “the board of directors and management maintained active oversight over the institutions’ compliance management system (CMS) framework. Institutions developed and implemented comprehensive risk-focused policies and procedures for small business lending originations and actively addressed the risks of an ECOA violation by conducting periodic reviews of small business lending policies and procedures and by revising those policies and procedures as necessary.” The Bureau adds that “[e]xaminations also observed that one or more institutions maintained a record of policy and procedure updates to ensure that they were kept current.” With regard to self-monitoring, Bureau examiners found that institutions had “implemented small business lending monitoring programs and conducted semi-annual ECOA risk assessments that include assessments of small business lending. In addition, one or more institutions actively monitored pricing-exception practices and volume through a committee.” When the examinations included file reviews of manual underwriting overrides at one or more institutions, Bureau examiners “found that credit decisions made by the institutions were consistent with the requirements of ECOA, and thus the examinations did not find any violations of ECOA.” The only negative findings made by Bureau examiners involved instances where institutions had collected and maintained (in useable form) only limited data on small business lending decisions. The Bureau states that “[l]imited availability of data could impede an institution’s ability to monitor and test for the risks of ECOA violations through statistical analyses.”

Supervision program developments. The report discusses the March 2018 mortgage servicing final rule and the May 2018 amendments to the TILA-RESPA integrated disclosure rule. With regard to fair lending developments, it discusses recent HMDA-related developments and small business lending review procedures. With regard to small business lending, the Bureau highlights that its reviews include a fair lending assessment of an institution’s compliance management system (CMS) related to small business lending and that CMS reviews include assessments of the institution’s board and management oversight, compliance program (policies and procedures, training, monitoring and/or audit, and complaint response), and service provider oversight. The CFPB indicates that in some ECOA small business lending reviews, examiners may look at an institution’s fair lending risks and controls related to origination or pricing of small business lending products, including a geographic distribution analysis of small business loan applications, originations, loan officers, or marketing and outreach, in order to assess potential redlining risk. It further indicates that such reviews may include statistical analysis of lending data in order to identify fair lending risks and appropriate areas of focus during the examination. The Bureau states that “[n]otably, statistical analysis is only one factor taken into account by examination teams that review small business lending for ECOA compliance. Reviews typically include other methodologies to assess compliance, including policy and procedure reviews, interviews with management and staff, and reviews of individual loan files.”

In the CFPB’s RFI on its supervision program, one of the topics on which the CFPB sought comment is the usefulness of Supervisory Highlights to share findings and promote transparency. The new report indicates that the Bureau “expects the publication of Supervisory Highlights will continue to aid Bureau-supervised entities in their efforts to comply with Federal consumer financial law.” Presumably, this means that we will now again be seeing new editions of Supervisory Highlights on a regular basis.

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